The Federal Budget 2008-2009 must not potentially worsen the plight of the poor if it does not ameliorate lot of the rich. Whether it is pro-poor or pre-poor, the budget was desired to go parallel with the two Misery Indices: 1) considering the rate of consumer-price inflation and unemployment rate and 2), keeping in view the rate of consumer-price inflation and the annual interest rates.
To begin with, according to the budget current expenditure amounts to Rs 1.56 trillion while the revenue receipts stand at Rs 1.40 trillion; that is expenditures are 111.43 % of revenue hence the resource gap. The total outlay of the budget amounting to Rs 2010 billion is 29.7 percent higher than the size of budget for FY 2007-2008. The overall expenditure during FY09 estimated to be Rs 2010 billion take into account the current expenditure of Rs 1493 billion to appropriate its share equal to 74.3 percent which was 77.8 percent last year for FY08.
As a policy matter, the objectives of the Budget pivot on: 1) industrial incentives for growth and expansion, 2) discouraging imports of non-essential and luxury items, 3) minimizing the cost of doing business, 4) cascading effect in tariff rates maintained as a guide (primary raw materials @ 0% -5% and finished goods @ 20%-35%). However, only a periodical or mid-term review will reveal the objectivity of the budget policies.
In the passing, agriculture still erects as a backbone of the economy though weakening gradually. Historically speaking; rendering agriculture an industry has remained to be a forlorn hope. We see a few well equipped plants for milk processing though, but still other products of the milk chain such as butter and cheese still wait to be industrialized. Yet, meat processing and packaging is altogether non-existent. By the same token a huge quantity of fruits is devoured by poor growth, storage and farm-to-market mechanism. Naturally, these products may be nurtured, preserved and properly marketed, thereby churning out export surplus to boost dwindling forex reserves.
In general, the budget seems a bit over-ambitious at quite a few fronts: e.g to increase GDP growth by 5.5 percent and determined to contain inflation at a mammoth 12 percent; maintain gross investment to GDP ratio at 25 percent, limit fiscal deficit to 4.7 percent, reduce the current account deficit to 6 percent of the GDP and increase the forex reserves to USD 12 billion. (We will soon find how these measures are so ambitious).
Similarly, a 20 percent increase in basic pay has been announced for all federal government employees and defence services personnel. A similar increase in net pensions has also been proposed. The minimum pension of Rs 300 has been increased to Rs 2000, further a 100 percent increase in conveyance allowance for government employees up to BPS 19 reflects the increase in commuting cost because of the manifold increase in the price of oil.
The minimum wage has been increased from Rs 4600 to Rs 6000 per month; a substantial 30.43 % raise when blended with the rate of inflation should tantamount only to less than 20 % in real terms. Likewise, inflation undercuts the 20 % increase in government employees’ salaries to merely equal to 8 % given official rate of inflation haunting at 12 %. Yet the non-government employees: in a sense the ‘Marxian Proletariats’ who work like ‘stomachs’ will have to parley on the mercy of ‘Capitalists’. However, the otherwise squeezing-income pattern is planned to be reversed through the ‘Benazir Cards’; the coupons for the poor; lest they degenerate to enormously serve PPP-workers.
However, the profit rates on the National Saving Schemes (NSS) have been increased by 2 percent and are supposed to be revised quarterly instead of biannually so as to minimize the gap between NSS-profit rates and the market rates. This would offer a sigh of relief to senior citizens in particular though it will tend to add to the debt servicing cost with respect to government. Finally, on the ambitious front, the act of raising subsidies from Rs 114 billion in the original FY08 to Rs 400 billion can simply spared for the coming time to justify; subsidy-- the very phenomenon which cruelly ate into the last years’ revenue stack.
Rationally enough, the budget tends to discourage imports of non-essential and luxury items. The custom duties have been proposed to be enhanced on 300 luxurious items such as automobiles of 1800 cc and above. Furthermore a cross-subsidization has been envisaged by imposing Petroleum Development Levy on transport fuels.
Lastly, it would be legitimate to consult a third party like Standard & Poor's to serve as judge with respect to the Budget 2008-09. According S&P, Pakistan's budget 2009 is generally comparable with the public expectations. Further, on technical grounds it hardly has cast any impact on the country's rating like 'B' for long-term foreign currency and 'BB-' for long-term local currency sovereign credit ratings. The S&P further continues ‘…..revenue goals face additional risk from a slowing economy, as the official GDP growth forecast of 5.5 percent could turn out to be overoptimistic in light of monetary tightening and slowing foreign direct investment inflows.' This implies that the rating would further diminish if fiscal and current account deficits do not improve; hence an overambitious budgetary goal. On the face of it, Pakistan has never been able to expand its revenue income by 25 per cent in a year or inhibit expenditures from not climbing at least by 10 %!
To address poverty or maintain equity, the Benazir Cards have been coupled with ‘whiteners’ and exemptions. The budget allows ‘haves’ to whiten their black money through the ‘whitener’ of two per cent tax. By the same token the stock brokers; the other component of ‘haves’ will be allowed an exemption from capital gains tax for two more years. Worrisomely, if the Benazir Cards fail to be equity-based, these ‘rich measures’ would certainly widen the gap between the ‘haves’ and the ‘have-nots’ which is already 7 times given our Gini Coefficient.
To conclude, the whole budget document seems to be a ‘guestimate’; it is for fools (poor) to ride the horses of hopes and the wise (rich) to contemplate and manipulate so as to evolve a world out of the mess. ‘With me the ideal is nothing else than the material world reflected by the human mind, and translated into forms of thought.’ (Karl Marx, Das Capita: Preface)